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Contents
Bank Briefing and Financial Abstract page2-3
Corporate Governance page4-16
Shareholders Meeting\Board of Directors\Supervisor\Senior Management\External Auditor
Capital Adequacy
Remuneration Policy
Risk Management
Social responsibility
Organizational Structure page17
Audit Report page17
Accounting Statement
Affiliated Notes to Accounting Statement
This Annual Report is the SPD Silicon Valley Bank 2016Annual Report and Accounting Statement. According to the Commercial Bank Information Disclosure Policy issued by China Banking Regulatory Commission, this Report shall include a BOD report, a financial report, an independent audit report and other information.
This Annual Report and Accounting Statement is prepared in both Chinese and English. The English is a translation version for reference purposes only. In case of any discrepancy between the Chinese version and the English version, the Chinese version shall prevail.
Bank Briefing and Financial Abstract
Financial Abstract(USD MM)
2016年 / 2015
Yearly
Operating Income / 138.17 / 77.92
Operating Expense / 123.67 / 93.58
Operating Profit / 14.50 / -15.66
Total Profit (Loss) / 17.00 / -4.75
Net Profit (Loss) / 12.54 / -3.68
Balance Sheet as of Dec. 31
Loan / 1,310.52 / 579.00
Total Assets / 4,437.26 / 2608.94
Customer Deposits / 3,080.73 / 1553.44
Total Liabilities / 3,394.33 / 1578.56
Total Owner’s Equity / 1,042.93 / 1030.38
Capital Adequacy Ratio / 49.63% / 82.54%
PS / Operating Income = Net Interest Income + Net Fee and Commission Income + Net Losses on FX and Derivative Transactions
Operating Expense = Business Tax and Levies + General and Administrative Expenses
Operating Profit = Operating Income - Operating Expense
Total Profit (Loss) = Operating Profit + Non-Operating Income
Net Profit (Loss) = Total Loss - Income Tax
SPD Silicon Valley Bank (“SSVB” or the “Bank”) is a Sino-foreign joint venture bank held 50%-50% by Shanghai Pudong Development Bank (“SPDB”) and Silicon Valley Bank (“SVB”). SSVB has a registered capital of RMB 1 billion.
Our Chinese shareholder SPDB plays a leading role in domestic corporate banking business. As a listed joint-stock bank with business across the country, after over a decade’s rapid development, SPDB hasestablished a strong nationwide network and gained comparative edge in corporate banking business.
Our foreign shareholder SVB is the California bank subsidiary and the commercial banking operation of SVB Financial Group. SVB is headquartered in Santa Clara, California, the heart of Silicon Valley and is established with the approval of the California Department of Financial Institutions.SVB is focused on providing financial services to technology companies. In the U.S. or even worldwide, SVB is almost the only commercial bank that has consistently and exclusively focused on serving the technology space.
On October 14, 2011, CBRC approved the preparation of SPD Silicon Valley Bank (Yin Jian Han [2011] No. 278). SSVB formally opened on July 30, 2012 as approved by CBRC (Yin Jian Fu [2012] No. 415).
Besides the head office, the Bank got the formal approval of opening the Beijing Branch from CBRC Beijing on 30 Dec 2016 (Jing Yin Jian Fu [2016] No. 733).
SPD Silicon Valley Bank Co., Ltd.
21-22 Floor, Tower B of Baoland Plaza, No. 558, Dalian Road, Yangpu District.
Tel: (8621) 35159088/89 Fax: (8621) 35963099/35963199
The Bank moved to the addresson May 25, 2015: from 2-3 Floor, Block A, North America Plaza, No. 518, Kunming Road, Yangpu District, Shanghai
On March 19, 2015, CBRC approved the Bank to provide RMB services to clients other than citizens inside the territory of China. After the Bank completing legal process according to the relevant laws and regulations, the business will be extended to foreign exchange business for all clients and RMB business to clients other than citizens inside the territory of China within the above scope.
As approved by CBRC, the Bank will engage in foreign exchange business for all clients withinthe following scope: accepting public deposits, makingshort-term, medium-term and long-term loans, acceptanceand discount of negotiable instruments, buying and sellinggovernment bonds and financial bonds, buying and sellingnon-stock negotiable securities denominated in a foreigncurrency, providing L/C services and guarantee, domesticand international settlements, buying and selling foreignexchange for itself or on an agency basis, inter-bankfunding, bank card business, safe deposit box, providingcredit-standing investigation and consultation services, forex sale and purchase business, andother business approved by CBRC.
On March 19, 2015, CBRC approved the Bank to provide RMB services to clients other than citizens inside the territory of China. According to the relevant laws and regulations, the business is extended to foreign exchange business for all clients and RMB business to clients other than citizens inside the territory of China within the above scope.
The Bank will leverage the advantages of its two shareholders and focus on providing commercial banking services for China’s technology and innovation companies. The strategic goal of the Bank is to become the model for China’s banking industry in serving China’s rapidly developing technology and innovation companies as well as risk management, and become an active driver of China’s innovation ecosystem.
BOD Report– Corporate Governance
BOD
As of December 31, 2014, the BOD of SSVB consisted of the following members:
Liu Xinyi Chairman
Dave Jones Executive Director,President
Ken Wilcox Non-executive Director
Jiang Mingsheng Non-executive Director
YuanRui Non-executive Director
Michael Descheneaux Non-executive Director
LiuXiaodong Independent Director
Deng Feng Independent Director
The BOD shall be responsible to and report to the Shareholders Meeting, and shall perform duties according to the Articles of Association of SPD Silicon Valley Bank.
The BOD duly performed the duties of trusteeship and custody this year. In 2016, the BOD and its sub-committees (including the Strategy Committee, the Risk Management Committee, the Related-Party Transaction Control Committee, the Audit Committee and the Remuneration and Evaluation Committee) complied with applicable laws and regulations, regulatory requirements and the Articles of Association, duly performed their duties under the Bank’s corporate governance structure and mechanism, and approved important matters within their authorities. The BOD and its sub-committees also conducted risk monitoring and oversight on the senior management’s performance through hearing the reports made by senior management, reviewing reports on the performance of internal control and risk management, etc.
The directors were diligent and responsible, and actively attended BOD and sub-committee meetings. The directors actively participated in discussions and proposed professional opinions and advice based on their expertise and experience.
CBRC Shanghai approved the appointment of Mr. Deng Feng as the independent director on August 5, 2016. As approved by the BOD, Mr. Deng Fengserved as Chairman of the Remuneration and Evaluation Committee. The independent directors diligently and duly performed hisduties as independent director and convener of BOD committees.Mr.Deng Fengactively attended BOD meetings, proposed independent opinions and advice on the Bank’s major business issues based on their expertise and experience, and played an active role in the establishment of the BOD and its sub-committees, the preparation of business development strategy plan, the appointment of senior management members, internal and external audit, risk management, etc.
The BOD held fourmeetings on February18,May 12, August 11and November16 in2016. The BOD deliberated and adopted the business development strategy plan, the budget plan, audit plan, remuneration proposal and other important resolutions.
The Risk Management Committee held fourmeetings in2016. The Strategy Committee held threemeetings in 2016. The Audit Committee held fourmeetings in 2016. The Remuneration and Evaluation Committee heldthreemeetings in 2016.The Related-Party Transaction Committee held one meeting in 2016.
Supervisor
As of December 31, 2016, the Bank had one supervisor, assumed by Mr. Lu Xiongwen. The supervisor is appointed by the Shareholders Meeting, and shall be responsible to the Shareholders Meeting and report to the shareholders. The supervisor was diligent and responsible, and effectively performed his duties. The supervisor attended BOD and sub-committee meetings (as non-voting delegate), reviewed BOD documents, heard reports made by senior management at BOD meetings, actively participated in discussions from the supervisor’s perspective, inspected the Bank’s financial conditions, supervised the performance of directors and senior management, conducted performance evaluation and reported the evaluation results to the Shareholders Meeting.
Senior Management
As appointed by the BOD and approved by the regulator, as of December 31, 2016, the senior management of SSVB consisted of the following members:
Dave Jones President
Oscar Jazdowski Vice President
Head of Corporate Banking Department
Harvey Lum Vice President
Chief Risk Officer and Head of Risk Management
Ke Pei Vice President
Chief Compliance Officer and Head of Strategy and Compliance
Maggie Shao Vice President
Chief Financial Officer and Head of Finance and Treasury
Bradley Gao Chief Operation Office and Head of the Operation
Sharon Yang Head of the Human Resource
Shareholders’ Meeting
The Bank held a shareholders meeting on May 12, 2016, the shareholders’ representatives deliberated and adopted the 2015final account plan, 2015 profit distribution plan, 2016 budget plan, 2015BOD report, 2015BOD and Director Performance Evaluation Report, 2016-2020 strategy planand other important resolutions.
External Auditor
As approved by the Shareholders Meeting, the Bank appointed PricewaterhouseCoopers Zhongtian Certified Public Accountants as its external auditor for 2016fiscal year.
Capital Adequacy
As of December 31, 2016, SSVB had CNY1043 million of net core Tier 1 capital, with CNY 1000 million of paid-in capital, CNY 35 million of capital reserve, CNY 0 million of retained earnings, CNY 1 million of surplus reserve, CNY 7 million of statutory general reserve.
The calculation of SSVB’s capital adequacy ratio covered credit risk, market risk and operational risk, and the weight approach, standardized approach and basic indicator approach were adopted respectively to calculate related risk-weighted assets.
As of December 31, 2016, SSVB had no domestic or international branches or directly or indirectly held financial institutions. As a result, the calculation of both consolidated and unconsolidated capital adequacy ratios covered only the head office.
As of December 31, 2016, all of the core Tier 1 capital adequacy ratio, the Tier 1 capital adequacy ratio and the capital adequacy ratio of SSVB were well above regulatory requirements.
Remuneration Policy
Remuneration policies in SSVB are designed to support the Bank’s business strategies and goals, to improve the risk management efficiency, to provide flexibility to respond dynamic business needs, and to promote the Bank’s core value of “CHENGGONG”.
The Remuneration and Evaluation Committee (“the Committee”) is a committee of the Board of Directors of SSVB. The Committee members are appointed by the Board, and have at least three members and one convening person. The convening person of the Remuneration and Evaluation Committee is the independent director nominated by shareholders.
The Remuneration and Evaluation Committee mainly have the following duties and responsibilities: drafting appropriate standards for evaluating directors and senior management, performing the evaluation and submitting the comments to the Board; conducting research regarding the evaluation and salary policy and scheme of directors and senior management; supervising the implementation of the Bank’s remuneration schemes and material incentive programs; other matters prescribed by the laws, regulations and rules or matters otherwise authorized by the Board of directors.
The major components of remuneration comprise fixed pay, variable pay such as performance-based incentives or bonuses, and employee benefits. The remuneration data may differ across different job grades and departments according to established industry norms. The Bank believes the principle of “pay-for-performance” so the variable pay is linked with the Bank’s overall business performance as well as individual staff’s performance. The budget for the performance-based incentive is reviewed by the Remuneration & Evaluation Committee and approved by SSVB Board.
In SSVB, certain portion of the performance-based incentive compensation to all senior executives as well as other employees who have a material impact on the risks in the bank is paid under deferral arrangement. This is to get individual staff’s compensation and risk control aligned. In the case of abnormal exposure of risks or fraud or other policy violations of the senior executives or relevant employees within the prescribed time period, the Bank has the right to require refund of all the performance-based incentive within the corresponding time period, and cease all the outstanding compensation.
The Bank believes that the organizational culture and employees’ behaviours are the critical factors in helping to achieve the Bank’s corporate goals and maximize the business performance. Therefore, SSVB employees overall performance are measured based on both the employee’s goal achievements and also the employee’s citizenship behaviour in demonstrating the Bank’s Core Value and Standards. The performance management process is transparent, fair, and applied consistently to all employees.
The Bank aligns remuneration with prudent risk-taking and responsibilities. If any employee, who breaches the Banking laws and regulations, or the Bank’s internal policies and standards, will be no or less considered for the incentive reward for that year, depending on the seriousness of his misconduct.
In 2016 there was no exception case that exceeding the annual budget. The Bank will continuously review our remuneration policies in order to support the Bank’s stable operations and continued business growth.
Risk Management
Risk management of the Bank has three broad objectives:
•To align risk management with the Bank’s vision, values, mission and overall business strategy;
•To inoculate the ownership conscious of risk management throughout the Bank, from individual employee in each business unit to the executives on Steering Committee; and
•To continuously improve risk management by identifying, developing and managing risk measures in an economically efficient manner via business plans, risk controls and supporting technology.
The Bank implements enterprise-wide risk management so as to identify various risks that the Bank may have and to monitor them from the top management and based on a unified risk management framework. The risks identified include: credit risk, market risk, liquidity risk, operational risk, compliance risk, reputational risk and strategy risk.
The BOD provides general risk oversight, with its sub-committees (the Audit Committee, the Strategy Committee, the Risk management Committee, the Remuneration and Evaluation Committee, and the Related-Party Transaction Control Committee) focusing on specific risk categories. In addition, the Audit Committee provides oversight for enterprise-wide risk management.
At quarterly board meetings, RMC provides the risk assessment report to BOD for awareness and discussion of risk management strategies.
The Risk Management Committee (RMC) provides the last round of feedback to the business unit, ensuring that all possible risks and risk mitigates have been identified and documented. The RMC also elevates any key risks, if appropriate, to the Board of Directors.
The Chief Risk Officer and other managementpersonnel shall ensure the establishment and implementationof enterprise-wide risk management policies and strategies governing key factors related to credit, market, liquidity, operational/technology, legal/compliance and strategic/reputational risk, and shall report to the Risk Management Committees on a quarterly basis. The Risk Management Committee and Risk Management Department will be responsible for carrying out enterprise-wide risk management on the Bank. In 2016, we have completed the risk assessment for credit risk, market risk, liquidity risk, operational risk, compliance risk, reputation risk and strategy risk. The results are as follows:
Rating / Remark / Trend / RemarkCredit Risk / Medium / Continued watch for macro and micro-economic impact to portfolio. Currently, no noticeable issues. Portfolio risk is satisfactory. Only one loan substantially at risk for loss approximating RMB 1.1MM. Portfolio is concentrated in software, which includes digital content, e-Commerce and advertising. / Stable / Portfolio remains in satisfactory condition. Some longer cycles of Company fundraising as entrepreneurs and investors adjust to slowing or reduced valuation growth. Fundraising environment is still satisfactory and opportunities are plentiful, but investors are still selective.
Market Risk / Medium / Loan growth and deposit campaign lower the net interest income sensitivity. Continued RMB depreciation. / Stable / Remains within the tolerance aligned with our business strategy. However, more volatility in the market is expected in the future.
Liquidity Risk / Medium / Liquidity overall is good due to capital base, however RMB Loan to Deposit ratio continues to have volatility due to competitive nature for deposits. The deposit campaign has helped to lower the concentration in the deposit base to the historically lowest level. The growth in loans has kept pressure on the liquidity. / Increasing / Expect continued pressure on RMB Loan to Deposit ratio. Healthy pipeline of loan opportunities will necessitate continued deposit focus. Other opportunities to seek deposits are being explored, but will require some infrastructure development. Plan to convert portion of USD capital to RMB to provide cushion.
Operational Risk / Medium / Operational was stable during the year with no material issues. Increased transaction volume requires the need for a balanced risk approach. Bank continues to rely on outside vendors and vendor management, primarily in the area of IT, however this is closely managed. / Increasing / Constant evaluation of systems and operational processes will be focused for future business growth. Processes are in review and being conducted at an inter-department level.
Compliance Risk / Medium / Overall satisfactory, no significant violation or control gap. However, at end of year, there was an inadvertent violation of the single borrower concentration limit of 10% (actual of 10.65%). Remediation plan for controlling ratio violations are already underway.
Recent audit results in AML Compliance risk yielded fewer overall issues, but concluded with a Needs Improvement rating due to weaknesses in monitoring, KYC processes and the scalability of the existing sanctions screening solution. / Stable / Continued training and self-inspection to avoid inadvertent mistakes
Reputation Risk / Low / Maintaining brand equity, leveraging new media / Increasing / The more customers, products and channels we have, the harder we have to work in order to meet the expectation and demands of our clients in an ever-changing environment.
Strategy Risk / Medium / Stage of development still requires flexibility in managing business growth. Competitors continue to emerge for core elements of business, but none have the capability to provide the global platform, nor understand the positioning of the platform. Continue to interact with governmental authorities to stay abreast of changes and influence change to better serve the innovation ecosystem. / Stable / Continue to stay the course, but stay mindful and disciplined with constant changes.
Internal audit, as a 3rd line of defence for risk management, evaluates the adequacy and effectiveness of the Bank’s risk management processes for identifying, measuring, monitoring and controlling risk, reports their findings to the Audit Committee and follows up with the corrections. To maintain independence, the Head of Internal Audit reports directly to the Chair of the Audit Committee.